5 Earnings Short-Squeeze Trades

Games and semiconductors are among the sectors with stocks under pressure.

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ADTRAN

One earnings short-squeeze play in the communications equipment complex is ADTRAN ( ADTN), set to release numbers on Wednesday before the market open. Wall Street analysts, on average, expect ADTRAN to report earnings of 46 cents per share on revenue of $174.71 million.

The current short interest as a percentage of the float for ADTRAN is notable at 7.8%. That means that out of the 63.43 million shares in the tradable float, 4.64 million are sold short by the bears. The bears have been increasing their short positions from the last reporting period by around 6.2%, or by about 271,000 shares.

From a technical standpoint, ADTN is currently trading above its 50-day moving average and below its 200-day moving average, which is neutral trendwise. This stock recently found some buying support at around $27.71 to $27.68 a share. Since finding that support, the stock has rallied up to its current price of just over $31 a share.

The way I would play ADTN is to wait until after they report their earnings and buy the stock if it holds above its 50-day moving average of $31.17 and if it trades back above today's high of $32.44 a share. Look for volume that's tracking in close to or above its three-month average action of 894,976 shares. If we get that move, I would look for this stock to challenge its 200-day moving average of $34.16, or potentially much higher.

I would only consider shorting this stock after earnings if it drops below its 50-day moving average of $31.17 on heavy volume. If that level is taken out, I would then add to any short position once it drops below some near-term support at $29 a share with volume. If those levels are taken out, I would target a drop back toward $27.70, or possibly much lower if the bears whack this post-earnings.

Even after the Dow Jones Industrial Average dropped 1,000 points Monday morning, investors in semiconductor and hardware companies still have viable options within the markets, according RBC Capital Markets analysts.